Last night I had the good fortune to go to a closing dinner to celebrate the sale of one of my portfolio companies to a strategic buyer, an event that happened earlier this year. In a time in venture capital when exits are few, and causes to celebrate even fewer it seems, it was great to be at an occasion where everyone was happy to be there, particularly since this exit was a very positive one.
For those of you who haven’t been to one, a closing dinner after a positive exit is the effective equivalent of a Bat Mitzvah in the venture capital world. We, the proud investors and senior management team (parents), are there to celebrate the coming of age (exit) of our spawn (the portfolio company to which we gave our cash). All the usual characters from a Bat Mitzvah are well represented: the proud parents, the happy relatives, the friends, the advisors. Similar to a bat mitzvah, everyone is slapping each other on the back, saying congratulations and liberally partaking of the ceremonial wine. The only thing missing is the Board carrying the CEO around on a chair.
Quite ironically, this particular company’s exit occurred right around its 12th birthday, qualifying it for actual Bat Mitzvah status. Although most of the investors had been involved with the company for closer to 5-6 years, sometimes it felt like 12.
In fact, this was the theme of many of the speeches given. To paraphrase, “Wow, that was a hard and bumpy road and aren’t we lucky/happy/relieved/amazed that we got out the other end so well!” In other words, “Nice to be at a Bat Mitzvah instead of a Wake!”
I found it kind of interesting that people acted somewhat surprised that it went that way. To be honest, I haven’t yet seen a company that had a straight, upward and to the right pointing line from start to finish. Rather, in the many positive exits our firm has been involved with, the line looks more like the path taken by a blindfolded cat chasing after a highly uncoordinated mouse—roundabout, back and forth and a little bit spastic. Start-up companies are a little bit like that story about the six blind guys and the elephant: you get a different story about it depending on when you touch it. I don’t think I could point to a single example of a company that we count among our successes and claim that it didn’t try to commit suicide at least once along the way.
That is one of the reasons that the venture business is so difficult. It involves a lot of faith, patience and finger-crossing, none of which are key parts of the curricula at the typical American business school. Of course, management and investors do everything they can to create predictability and positive momentum, but as they say, shit happens. You can plan all you want and have the best management team in the world, but the funny thing about the future is that you can’t plan it out in advance. There is always a downward surprise or a kick in the gut that causes you to set out down a different, often windy path. Welcome to life, please leave your shoes at the door.
Of course, these travails are magnified when you don’t have the perfect product or the best management team in the world, which is typically the case when companies start out. While they may, in 20/20 hindsight, get to claim that they have invented cold fusion and that their team are all worthy of Nobel Prizes (or at least Oscars for best performance in a start-up), you have to be pretty Pollyannish at one of these closing dinners not to look back and say, “Remember that one guy? What a doofus he turned out to be.” or “Remember when our product didn’t, uh, work?” These closing dinners are notable, in part, due to who is absent and what is left unremembered (at least out loud).
I think this is what most makes closing dinners feel like Bat Mitzvahs. Throughout the speech-making and rejoicing there remains an echo of the hard road it took to get there (show me a teenager at 12 or 13 who hasn’t royally screwed up at least once and I’ll show you a psychiatrist who can help you with your delusions). But that’s ok, because it’s the destination that matters. The journey just gives you the stories to tell at your next closing dinner (“can you believe that guy got funded again?”).
To my colleagues from last night, and you know who you are, thanks for the exit but mostly thanks for the opportunity to work with you side by side in the raising of our little bundle of venture joy. Now, off to the earn-out—a whole new opportunity for hand-wringing and Xanax!